Negotiations Explained

What is negotiation?

“Negotiation” is a process by which two or more individuals communicate with the purpose of furthering or achieving differing or conflicting perceived interests or objectives. Further, negotiation is an instance in which parties engage in the negotiation process. The essence of negotiation is that the parties have the option of arriving at more than one outcome. That is, the results of the parties’ interaction are uncertain. As such, each party believes that communicating with the other party will allow her to further her interest or objective in the situation. For a negotiation to be successful, the parties must arrive at an agreement that fits with a range of situational outcomes acceptable to both parties. This does not mean that the parties must reach their desired outcomes. The outcome must simply be acceptable to each negotiator.

What scenarios or situations lead to a negotiation or cause parties to negotiate?

Negotiations result from actual or perceived conflicts of interest or objectives between two parties. The intent is to better one’s current position (further their interests or objectives) by achieving mutual assent with regard to differing perceived interests or objectives. The parties may desire to:

• align their actions (or inactions) in support of an interest or objective, or

• resolve a problem or dispute that exists (or may arise) between the parties by eliminating the point of conflict or difference.

What characteristics are common to all negotiations?

Negotiations can vary greatly in their topics, objectives, and parties involves. Nonetheless, there are several characteristics common to all negotiations, including:

• Parties – A negotiation will consist of two or more parties;

• Conflicts, Disputes, or Misalignment of Interests – The negotiators must need to align interests or objectives or to resolve a dispute;

• Willingness – The negotiators must possess a desire to negotiate;

⁃ Note: The parties believe that negotiating will further their interests or aid in achieving their objectives. This generally entails a belief that the other party can be influenced or persuaded to capitulate in some manner in the negotiator’s favor

• Ability to Improve One’s Position – The parties must believe that, by negotiating, they have the ability to improve their positions to be better than the best available alternative available if they do not negotiate; and

⁃ Note: Constraints may come in any form and make the alternative to negotiation less tenable. Aversions are a cognitive disposition with regard to a perceived result or alternative scenario in the event of a failure to negotiation (i.e., broken relations, harm to reputation, legal actions, etc.).

• Constraints – All negotiations involve various situational attributes, such as time, location, nature of communication, number of parties, and party characteristics.

What are the differences among negotiators that affect the negotiation process?

Individuals negotiate to further an interest or achieve an objective or resolve an existing dispute in a mutually acceptable manner. They do so in light of the characteristics of the situation (context and facts) and the other party (disposition, perception, and interest/objectives). Negotiators who are able to identify and understand these characteristics are generally more effective in the negotiation process than those who are not. Throughout this material, we address the following differing characteristics of a negotiation and the individual negotiators that affect the negotiation process:

What is a conflict and how does it give rise to negotiation?

“Conflicts” arise when one or more parties to a situation differ in their interests or objectives. One or more of the party’s actions or ideas (beliefs) in furtherance of these interests or objectives are incongruent or at odds with those of another party. There are two primary categories of conflict:

• Intra-personal Conflict (or intra-psychic conflict) – This regards the internal conflict that an individual experiences regarding her ideas, thoughts, emotions, values, predispositions, etc. These conflicts are psychological and are worked out through cognition (mental reasoning) rather than negotiated with another party.

• Interpersonal Conflict – This regards the conflict between two or more individuals whose interests or objectives are at odds. Sub-classifications of inter personal conflicts involving more than two people include:

⁃ Intra-group Conflict – This regards conflicts that arise between members of small group (such as a team or family). In a negotiation, such intra-group conflicts are equally important to the conflicts that exist with the counterparty.

⁃ Intergroup Conflict – This regards conflicts that arise between different groups (such as teams, businesses, nations, etc.). This is the most commonly understood type of conflict in a group negotiation.

In interpersonal conflict, the parties cannot act or otherwise achieve their interests or objectives without interacting with (negotiating with) another party with the same or similar interests or objectives. Further, in some interpersonal conflicts, the parties cannot achieve their interests or objectives simultaneously. That is, any negotiation over the interests at stake will cause one party to benefit at the expense of another. This is known as a “distributive negotiation”. In other interpersonal conflicts, the parties can achieve their desired outcomes in the negotiation without usurping value from the other party. This is known as an “integrative negotiation”.

How is a negotiator’s disposition toward conflict resolution related to negotiation strategy?

The conflicting interests of parties to a negotiation can be presented in a two-dimensional framework, known as a dual-concern model. The model provides a negotiator’s concerns for personal outcomes and the outcomes of others independently. It demonstrates how parties arrive at a disposition toward conflict resolution (competition, avoidance, collaboration, accommodation, or compromise) which will ultimately affect the strategy and tactics employed in the negotiation.

Five major strategies for conflict management have been identified in the dual concerns model:

• Contending (also called competing or dominating).

• Yielding (also called accommodating or obliging).

• Inaction (also called avoiding).

• Problem solving (also called collaborating or integrating).

• Compromising – Demonstrates an intention to engage in the back-and-forth that characterizes negotiation.

The strategy employed by a negotiator to resolve a conflict with vary depending upon the aforementioned characteristics or differences between negotiators. Further, a negotiator’s strategy will vary depending upon characteristics of the negotiation (level of dependence, integrative/distributive) and the negotiator’s alternatives.

What is the level of “dependence” in a conflict negotiation?

Dependence concerns the extent to which parties to a conflict rely on the other to achieve an outcome or resolution of the conflict. Negotiations are generally characterized as follows:

• Independent Negotiations – Parties to the negotiation are able to achieve their interests or objectives without assistance from another party. That is, the negotiator focuses on her personal interests or objectives without regard to the interests or objectives of the other parties.

• Dependent Negotiations – In direct contrast to independent negotiation, a party’s ability to achieve her interests or objectives depends entirely upon the actions of the other parties. This generally means that dependent party must, to some extent, allow the other party to further an interest or achieve an objective in the negotiation before the dependent party can improve her position. In negotiating practice, the dependent party must accommodate the other party with little requirement from concession from the other side.

• Interdependent Negotiations – Parties have mutual dependence on each other. To achieve their desired outcomes, each negotiator must work to achieve the interests or objectives of the other party or parties. The interests and objectives of the parties may be the same or they may be characterized as “interlocking”.

A negotiation is likely to be independent if a party is unable to improve her position or desired outcome by considering the interest or objectives of the other party. That is, the negotiator is driven in the negotiation solely by her own interests and objectives. If a party is completely dependent upon another party, she will negotiate by making concessions allowing the other party to achieve (or improve upon her position with regard to) her interests or objectives. Negotiating interdependently means that both parties will focus on the interests and objectives of the other party. The extent to which one party achieves (or improves her position with regard to) her desired outcome will improve the outcome of the other party. There is a give and take between the parties that allows both parties to achieve a more favorable outcome than they could achieve independently.

What are integrative, distributive, and compatible bargaining scenarios?

The interdependence of parties is often affected by the nature of the differing interests or objectives. The parties may find themselves in situations where the interest or objective of both parties is the same and is finite. Finite generally means that the interest is a fixed sum and cannot be expanded. We will use the phrases “fixed pie” and “expanding the pie” to refer to the finite or non-finite nature of interests.

A negotiation involving finite objectives or interests is known as a “distributive negotiation”. Alternatively, parties may find themselves in situations where the interests and outcomes of each party are not mutually exclusive (not the same and/or not finite); rather, both parties to the negotiation may be able to obtain a more favorable or desirable outcome than they could achieve without negotiating. That is, if the parties have competing interests (opposite interests) that can be improved through negotiation, this is known as an “integrative” negotiation. If the parties have interests that are not directly in conflict (i.e., the parties want exactly the same thing), this is known as a “compatible” negotiation. Distributive, integrative, and compatible negotiation scenarios are re-explained as follows:

• Distributive Negotiations: The interests or objectives of the parties are the same and are mutually exclusive. As such, it is a competitive (win-lose) situation. Any value claimed by one party in the negotiation is at the expense of the other party. This scenario generally is very competitive and does not foster cooperative behavior.

• Integrative Negotiations: The interests or objectives of the parties are related and are NOT mutually exclusive. Any value claimed by one party is not at the expense of the other party; rather, the parties negotiate to create or generate value in the situation and both parties may achieve mutual gains beyond what they could achieve independently. This is a potentially (win-win) scenario. Parties must generally much some degree of tradeoffs to improve both interests from their best alternative to a negotiated agreement (BATNA). These tradeoffs allow each party to gain in an interest that is important to her in exchange for the other party gaining in an interest that is important to him. The net result is both parties being better off because of the negotiation.

• Compatible Negotiation: The interests of objectives of the parties are the same and NOT mutually exclusive. In fact, the parties desire the exact same outcome. There is no need for tradeoff. The parties want the exact same outcome with regard to the interest or objective at stake in the negotiation.

While untrained negotiators tend to see negotiations as distributive in nature, negotiations generally combine aspects of claiming and creating value. Each requires unique strategies and tactics for a negotiator to effectively achieve her objectives while creating the greatest value possible for all parties.

• Note – IMPORTANT: A single negotiation may have multiple interests at stake – each of which is either distributive, integrative, or compatible.

What is the “BATNA” and what is the significance of “alternatives” in negotiation?

Parties negotiate in order to achieve a better result than they would be able to achieve independently of negotiating (or as an alternative to negotiating). A party may have any number of alternatives to those achievable through negotiation. The nature and extent of the alternatives available to a negotiator determine whether she will be willing to negotiate. If she is willing to negotiation, the alternatives available will determine the extent to which she is willing to “adjust” her position in the negotiation. Further, they may affect whether the parties see the negotiation as distributive or integrative in nature. The “Best Alternative to a Negotiated Agreement” or “BATNA”, as the name implies, is the most advantageous alternative for a negotiator if no agreement is reached via negotiation. The BATNA may be a subjective preference. That is, another person in the same position may find a different alternative more attractive for any number of reasons.

What is the significance of the “reservation point” and “ZOPA” in a negotiation?

The “reservation point” (also known as a resistance point) is the minimum acceptable term or terms that a negotiator is willing to accept before she ceases to negotiate and walks away. The reservation point may concern a single interest or collective value ascribed to any number of interests. If the terms of the negotiation cannot meet or exceed the reservation point, the negotiator may walk away from the negotiation in favor of her best available alternative or BATNA. In this way, the BATNA is the strongest influence when establishing a “reservation point”. As such, an effective negotiator must recognize her own BATNA, as well as seek to identify the BATNA of the other party. Each party’s reservation point establishes the “Zone of Potential Agreement” or ZOPA. As the name implies, if the negotiators are able to agree upon terms that are better than their individual reservation points (means that they are within the ZOPA), it should result in a negotiated agreement.

What is the significance of “concessions” or adjustment of the bargaining position?

A dependent party’s ability to secure her interests or achieve her objectives in a negotiation depends upon the willingness of the other party to assent to her position (beliefs, principles, desires, demands, etc.). That is, the other party must give in somewhat for the parties to arrive at an agreement. In an interdependent relationship, each party negotiates with the expectation that the other party will adjust her position to accommodate the position of the other party. Here, there must be some give and take by both parties to arrive at an agreement in the negotiation. A party’s adjustment of her position in the negotiation is known as a “concession”. More specifically, a concession is an adjustment by one party in favor of the other party as a result of a tactic employed by the other party. We will discuss tactics in a separate section, but tactic are methods of carrying out a strategy. A tactic is any method employed by a negotiator with the intent of influencing the other party. Any adjustment in the negotiation or concession is done with the purpose of bringing the parties within the zone of potential agreement (ZOPA). As such, one’s willingness to adjust her position affects the outcome and results of the negotiation.

What are “anchor points” and the “bargaining range” in a negotiation?

The parties generally open up a negotiation with an “offer” by one party and a response to the offer or “counteroffer” by the other party. The opening offer and response are known as the parties’ “anchor points”. As the name implies, these opening proposals be each party generally anchors their positions. The parties generally will not (or cannot) seek more value than they request or seek in their initial offer. As such, the anchor points establish the “bargaining range” for the negotiation. Rarely do parties arrive at a negotiated agreement outside of this range. All of the options within the bargaining range, however, might not represent an acceptable outcome to both parties. That is, either party’s anchor point may be outside of the other party’s acceptable range or “below her reservation point”. If the parties are not willing to make concessions that bring the terms of the negotiation within the zone of potential agreement (ZOPA), the negotiation will fail.

What personal and situational factors are commonly understood to affect negotiation?

Negotiations are far more complicated than just a bundles of facts that negotiators are trying to organize. While facts are the background of negotiation, the following situational factors are readily understood to affect the negotiation process:

• Context – The situation or conditions under which the situation arises. What are the facts of the situation? Who are the parties to the situation? What is the nature of the interaction or relationship between the parties. Are there teams or coalitions among the parties?

• Objectives or Interests – The objectives and interests of the parties are often subjective and will drive the negotiation process.

• Perception or Cognition – How an individual perceives the facts of the situation. Cognition is the mental process used to process these facts will shape a parties willingness to negotiate. An individual’s perception of the facts of a situation and the negotiation process will affect the ability to effectively process the facts or information. Cognition entails logic, emotion, and heuristics (biases). These elements affect a party’s understanding of what is a successful negotiation.

• Creativity – A negotiator’s willingness and ability to search for and develop alternative resolutions to situations involving differing perceived interests or objectives will affect the breadth of the negotiation.

• Strategy & Tactics – Each parties’ strategic plan for arriving at a particular outcome (or within a range of outcomes) and the tactics or measures employed to effectuate that plan will affect the negotiation process.

• Communication – The ability or effectiveness of parties to a negotiation to communicate their interests, objectives, and acceptable resolutions of situation will affect the negotiation process. In a way, effective negotiation practice is a communication exercise. Parties use communication techniques to derive and understanding of the other party and her interests. Communication is also the primary method of achieving concessions the bring a negotiation within a zone of potential agreement (ZOPA).

• Trust – Trust between individuals affects the willingness and depth of personal interaction. In this way, trust moderates the interaction between individuals when their interests and objectives differ.

• Relationships – The nature or extent of the relationship between individuals will contribute to the context, communication, and trust that define a negotiation.

• Ethics – Ethics influence and individual’s values, perceptions of situations, and the communication and strategic tactics employed in a negotiation.

• Culture – Aspects of cognition, communication, trust, and ethics are all implicated when individuals from different cultures interact.

• Medium of Communication – The medium through which parties communicate can affect numerous aspects of the negotiation. Notably, it affects the communication process and the cognitive processing of the information exchanged. This can, in turn, affect the strategy that the parties employ.

• Intermediaries – The presence of facilitators or decision makers will have an effect on the negotiator’s objectives, perceptions, strategy, communication, and trust in a situation.

• Process – A party’s willingness to negotiate and their actions in the negotiation process are affected by the negotiation process and the actual outcome obtained.

Each of these aspects of negotiation are important for effective negotiator to understand and is discussed individually throughout this material. This material draws heavily from negotiation research in the areas of management, psychology, law, economics, and other disciplines.